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Are you familiar with the term ‘due diligence’? If so, perhaps you have heard of due diligence as a service (DaaS). Firms across the country have been providing the service for at least a few years now. It is a service utilized by a certain segment within the business world.
For the record, the concept of due diligence applies strictly to business. The term itself has evolved over the years, to the extent that we use it in a lot of other ways. We discuss attorneys doing their due diligence prior to going to court. We talk about doing one’s due diligence before buying a house. The possibilities are endless.
In a strict business sense though, due diligence is more clearly defined. It is easily understood by looking at the types of entities that would use diligence-as-a-service. Mezy, a Utah company that provides a range of diligence services, says the following four entities are most likely to utilize DaaS:
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1. Financial Advisors
DaaS is an invaluable resource to financial advisors. As professionals with a fiduciary responsibility to clients, financial advisors have to be incredibly careful about every opportunity they present. Federal and state laws require that all investment opportunities be offered in the best interests of clients rather than advisors.
To that end, financial advisors must practice due diligence regularly. They must look closely at any and all aspects of a particular investment that might impact their clients. Due diligence requires that they look at financials, management teams, past histories, future forecasts, and so forth. All of this is tied up in the due diligence concept.
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2. Venture Capitalists
Next up are venture capitalists. These are investors who put their money directly into companies rather than investing in stocks and shares. In many cases, venture capitalists are looking to fund startups. They are often joined by angel investors to offer funding for the first two or three rounds.
Due diligence is critical to these types of investors because they really have no safety net to fall back on. If they put money into a loser, they could potentially lose it all. Winning requires investing in winners. It sounds too simple, but it really is. DaaS can be a tremendous help in steering venture capitalists to good opportunities and away from bad ones.
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3. Growing Companies
Although Mezy doesn’t do a lot with mergers and acquisitions, they say that DaaS is extremely useful to growing companies looking to continue that growth by acquiring or merging with other companies. Interestingly enough, this type of thing can happen either horizontally or vertically.
A horizontal acquisition involves a target company that is within the same industry and a comparable plane. Oftentimes it means acquiring competitors. Vertical integration is usually about acquiring a company for a specific technology or service capable of helping the acquirer move into different markets. In either case, due diligence is a must. Growing companies need to know what they are getting into before they proceed.
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4. Entrepreneurs and Startups
Finally, due diligence-as-a-service can be quite beneficial to entrepreneurs and startups looking to raise funds. How so? By preparing them to package themselves in the most attractive way possible. It is a lot like getting ready for the prom. You want to make the best impression possible from the very first glance.
DaaS is one of the latest entries to the as-a-service paradigm. Its key feature is that it offers services on an as-needed basis. Firms like Mezy provide valuable services to financial advisors, venture capitalists, growing companies, and startups alike. In every case, the services they provide lead to better decisions.